Why Debt Matters in Business

In a bid to drive the point home in the most emphatic way I probably know how, I’m going to cast my spotlight on some of the biggest global businesses which also double-up as some of the most recognisable brands in existence – football clubs, particularly those which participate in the biggest European leagues. The point is that debt matters, which by mere mention obviously makes reference to its existence in the context of credit as well, and just why it matters so much.

Year after year those of us whose love for football goes beyond what happens on the field delight in reading up about all the stats which are released with regards to how the teams run beyond the field and the changing rooms. It’s always interesting to learn about the business side of things and one of the most interesting of these lists is that of how much annual profit some of these teams make.

Some of the biggest clubs in the world including Real Madrid, Juventus, Barcelona, Arsenal, Manchester United, Chelsea, etc always seem to make the top spots by way of revenue, whereas only a few of what are the biggest clubs in the world post net profits. In terms of pedigree on the continent and perhaps by way of their domestic league, Arsenal Football Club can perhaps no longer be fully classed as one of the biggest clubs in the world, but by way of the net profit generated by the club it’s one of the best from a business point of view, if not the outright best.

The associated figures by way of revenue/profits are quite staggering and impressive to say the least, but what might just baffle the mind a bit is the fact that as much revenue as these clubs generate and as much net profit as a lot of them make, if you looked at their balance sheets your eyes would perhaps widen further when you check out just how much debt they have. Why would a club like Arsenal, which makes as much profit as it does, have so much debt as well? Why don’t they pay off that debt completely and then operate on pure profit with no strings at all?

These global businesses and others hold as much debt as they do because debt is important to any business that operates on a scale that has it classified as one which is bigger than a small-to-medium enterprise.

It’s as simple as this – the natural size of a business would be limited if it didn’t have access to debt, debt which it seemingly doesn’t need. In the case of Arsenal for example, the stadium which they’ve just recently paid off wouldn’t have been a reality for them if the club didn’t have access to a credit facility, so debt is important to help businesses expand faster than they otherwise would have managed had they not had access to credit. Sometimes they need to take on some debt just so that they can stay afloat.